IT and the Global Economy – 2014
RFG Perspective: There will be a number of global economic headwinds in 2014 that will mean slow or no growth around the world. The U.S. could creep up to three percent growth but the Affordable Care Act (Obamacare) implementation has a high probability of reducing growth to the 2013 level or less. This uncertainty will result in IT budgets remaining constrained and making it difficult for IT executives to keep current in technology, meet new business demands, and develop the skills necessary to satisfy corporate requirements.
Third quarter U.S. GDP gives the illusion that the U.S. economy is strengthening but that is hardly the case. The gains were in inventory buildups. Remove that and the economy of the United States mirrors that of many other countries. Europe remains weak and bounces in and out of recession while many of the so-called emerging markets are no longer bounding ahead. The BRIC nations (Brazil, Russia, India, China), whose growth had offset the weakness in the developed nations, are now underperforming. Growth in Brazil, India, and Russia has dropped significantly from the peak while China's merely slipped into more normal numbers. Now that the U.S. Federal Reserve has begun its taper, these nations could tumble even more. This does not bode well for revenue growth, which, in turn, means tighter IT budgets.
In addition to the Federal Reserve's actions overhanging the U.S. and global markets, Obamacare may add to the negative effect. The Affordable Care Act (aka Obamacare) is not that affordable and it seems the majority of individuals (and potentially corporations) are finding monthly payments are significantly higher, as are deductibles. This could slow the general economy even more if consumers and corporations are forced to hold back spending to cover basic healthcare costs.
The Bellwethers Struggle
There are three IT bellwethers for growth that we can look at to see how the world economy is fairing and how it is already impacting IT acquisitions. Some may say these companies – Cisco Systems Inc., Hewlett-Packard Co. (HP), and IBM Corp. – are no longer applicable in the new world of cloud computing but that is a false premise. These three firms are all heavily into the cloud and are growing rapidly in cloud/Internet related areas.
Cisco reported single digit revenue growth for 2013 year-over-year with revenues in the Asia Pacific area shrinking by three percent. While that is not bad, CEO John Chambers warned that revenues would decline eight to 10 percent in this quarter – its biggest drop in 13 years. One reason is that it is struggling in the top five emerging markets where revenues declined 21 percent. Brazil was down 25 percent; China, India and Mexico dropped 18 percent; and Russia slid 30 percent.
HP's fiscal year 2013 showed similar revenue results – down by single digits. It had lower revenues in all regions and printing supplies slip four percent year-over-year. Printing supplies has been one of HP's internal leading economic indicators, so this news is not good.
IBM's third quarter revenues came in four percent under the previous year's quarter, with all geographies down slightly or flat. But its growth markets revenues fell by nine percent and the BRIC revenues declined by 15 percent. There is a pattern here.
The collapse of the revenues in the emerging markets and BRIC nations is less a story of the bellwethers but of the countries' declining economies. These countries and the U.S. were the engines of growth. Not any longer.
RFG POV: 2014 has the appearance of being a less daunting year for IT executives than the past few years but economic, geopolitical and governmental disruptions could change all that almost overnight. Businesses may be able to avoid the global minefields that are lurking everywhere but the risk exposure is there. Therefore, it is highly likely that most CEOs and CFOs will want to constrain IT spending – i.e., flat, down or up slightly. Moreover, most budgets are reflections of the prior year's budget with modifications to address the changing business requirements and economic environment. Therefore, IT executives can expect to have limited options as they work to meet new business demands, keep up with technology, and develop the skills needed to satisfy corporate requirements. It is time to innovate, do more with less again, and/or find self-funding solutions. Additionally, IT executives will need to invest in process improvements to help contain costs, enhance compliance, minimize risks, and improve resource utilization. IT executives should work closely with business and financial executives so that IT budgets and plans are integrated with the business and remain so throughout the year.
RIM Slides, HP Offers DC Architecture, Security Breaches
Lead Analyst: Adam Braunstein
In the latest round of disappointing news from smartphone vendor Research in Motion, Ltd. , the company declared that it will miss quarterly projections and has solicited the advice of two banks to help it evaluate future revenue options. To improve the energy efficiency of data center operations, Hewlett-Packard, Co.'s new Net-Zero Energy Data Center architecture works to marry renewable energy supply with IT workloads. Lastly, several security breaches leaked passwords onto the Web.
Focal Points:
- Things continue to decline for troubled smartphone vendor RIM as the company announced that it will miss previous estimates for its March-June quarter and that it has hired two banking firms to help it evaluate future opportunities. The company further declared that it intends to institute "significant" staff reductions this year as it aims to shave $1 billion out of its operating costs. Sales of BlackBerries in the U.S. have fallen more than 60 percent since 2009 while its stock has plummeted 93 percent since its high in 2008; reaching its lowest level since 2003. Hoping for a marked turnaround after the release of the highly-revised BlackBerry 10 later this year, new CEO Thorsten Heins has previously declared that the company will abandon the consumer market to focus on enterprise sales. The company now claims 78 million subscribers worldwide and accounts for approximately 6.5 percent of the global smartphone market. RIM's secure, managed network and robust patent portfolio could be worth north of $8 billion. Elsewhere, RIM also announced that it is discontinuing production of the 16 GB PlayBook tablet and will concentrate production on the larger 32 GB and 64 GB models.
- HP Labs has unveiled a new data center architecture, called the HP Net-Zero Energy Data Center, designed to cut total power usage by 30 percent and dependence on grid power by more than 80 percent. The model centers around a management architecture that marries IT workload planning and energy and cooling resources using four core HP modules. A prediction module forecasts costs and availability, a planning module balances workload with processing requirements, and an execution module allows for real-time management. Lastly, a verification and reporting module helps ensure gaps are closed between predictions and real-world behaviors. The paradigm calls for matching energy supply with energy usage required by the IT workload to maximize the usage of available energy. Non-essential, batch workloads that do not require immediate processing would be scheduled during daylight hours when power from solar arrays is most plentiful, for example.
- Several high-profile breaches were reported this week including one where 6.5 million LinkedIn passwords were leaked on the Internet. While it is unclear when the hack took place, a hacker possibly based out of Russia posted the hashed passwords sans usernames to a Russian forum over three days in the last week. One leading security firm surmises that about 60 percent of the SHA-1 passwords have already been cracked. LinkedIn has said that it is contacting users whose accounts have been compromised and instructing them as to how to reset their passwords. In an unrelated attack, dating site eHarmony has also admitted that an unknown quantity of member passwords has been stolen. Presidential nominee Mitt Romney had one of his personal e-mail accounts compromised this week by an anonymous prowler who was able to execute a password reset by correctly guessing the answers to password reset security questions. This follows the method employed to obtain access to one of vice presidential candidate Sarah Palin's personal accounts nearly four years ago.
RFG POV: RIM's prospects are getting grimmer for its future as an independent entity. The company is having issues selling its already-manufactured, old-style BlackBerry devices and is facing another write-down as it tries to unload them at severely discounted prices. While Heins is at least outwardly intent on restoring RIM to its former glory and keeping its independence, the market has moved so far beyond the BlackBerry and its closed-network paradigm. The company's two large assets consist of its patent stockpile and its secure, proprietary network; the sale or rental of either of which would potentially afford the company the cash to remain independent but would not further its position as a hardware vendor. Similarly, BlackBerry 10 is not enough of a game changer to win back converts or invite new users into the fold; thus, it will need to turn to adopting a licensing or sale of key assets. IT executives requiring the highest-levels of security should continue to use BlackBerry solutions for mobile users but should have exit strategies at the ready as changes are likely afoot. HP continues to cement its role as a leading provider of environmentally cost-effective solutions for new data center architectures and much can be learned from their latest architectural design. The demand for new computing, storage, and cooling resources along with the increasing rate of technology change are forcing enterprises globally to address operational resource constraints and cost concerns in new and innovative ways. The solutions chosen for new and upgraded data centers should incorporate the best practices demonstrated by leading technology firms that integrate concepts such as free cooling, renewable power, and resource optimization into their designs. IT executives building new data centers are advised to invest in technologies that meld energy savings, modularity, and rapid hardware refresh capabilities to maximize investments and enable needed IT agility. The latest set of password leaks demonstrates how no entity is immune from attack and that prestigious targets are among the most desirable. The attack vector used to expose hashed passwords for LinkedIn is not known as yet; however, the use of SHA-1 is somewhat disconcerting though expected. Despite SHA-1 hashes having known weaknesses that were identified more than a half-decade ago, it remains the most widely used of the hash functions. SHA-2 hashes have not yet been compromised and a new SHA-3 hashing schema will be selected later this year. IT executives should have guidelines requiring the replacement of compromised technologies within timelines appropriate to the perceived exposure, and where they cannot be replaced rapidly, additional layers of physical, technology, and verification security should be enacted.Â